3 Responses to Grand Oil Party ignores natural gas market realities
Another week, another hearing by the House Natural Resources Committee to perpetuate the myth that the only thing standing between us and energy security are the policies erected by the Obama administration that are supposedly thwarting domestic drilling on public lands. CAPAF’s Tom Kenworthy has the story in this WonkRoom cross-post.
According to a recent statement by committee chairman Rep. Doc Hastings (R-WA), the “greatest factors” for new drilling are federal regulations and laws:
Federal regulations and laws, especially those imposed by the Obama Administration, are the greatest factors affecting the pace of developing leases. The Administration has imposed regulation after regulation, roadblock after roadblock, and now wants to turn around and say production is not moving fast enough.
In reality, reasonable federal oversight is no match for the fundamental laws of supply and demand. It is the laws of the market that largely determine the pace of exploration and drilling on federal lands, just as they do on private lands. In response to the recession (caused in large part by deregulation of Wall Street) and large new supplies of natural gas from shale gas formations from Texas to New York (a glut encouraged by underenforcement of environmental rules), natural gas prices fell sharply in 2008 and have yet to recover. The collapse in prices drove down new drilling.
“The industry ramps up activity when prices rise and reduces activity when prices fall,” natural gas giant Devon Energy wrote bluntly in its 2008 annual report. “Devon’s sharp reduction in exploration and production capital spending in 2009 reflects our response to the current low-price environment and concern about the global economy.”
Even Kathleen Sgamma, a leader of the Independent Petroleum Association of Mountain States (now the Western Energy Alliance) who agrees with Hastings about Obama administration policies, admitted the truth last year:
Drilling is down because of the economy. I don’t think anyone denies that.
Maybe the committee’s leaders need a graphical representation of the facts. The graph below shows the correlation between the wellhead price for natural gas (80 percent of the fossil energy developed on public lands is gas) and the number of producing oil and gas acres on public lands, with the number of oil and gas wells spud, or begun, on public lands:
Sources: Energy Information Administration; Bureau of Land Management. Click to enlarge.
When the price of natural gas goes down, the industry produces and drills less. In other words, it’s the market. So simple, even the Grand Oil Party should be able to understand it.
— Tom Kenworthy, a Senior Fellow at the Center for American Progress.